Ohio National Financial Services Inc.'s plans to stop writing variable annuities may be the precursor to a sale of the entire block.
The company's full-on sale of variable annuity products is consistent with market trends of other companies with big closed-block variable annuities that have divested, according to S&P Ratings Associate Director Anika Getubig.
"They would be a typical target of alternative capital," Getubig said. "This is not what the company has said, but it is consistent with market trends ... I would say that anyone interested would knock on their door and we'll see what happens."
Ohio National declined to comment on whether the action is a signal that the variable annuity block is up for sale. Instead, a company spokesperson wrote in a statement that its focus is on investing in businesses where it has a "competitive advantage." The decision to end variable annuity sales was made primarily because Ohio National "reached the limit of annuity business we believe is appropriate" for the portfolio, the spokesperson said.
The company is repositioning capital and resources that would have been used to grow variable annuities to the life and disability income lines, the spokesperson added. Changing regulations, persistently low interest rates and a changing competitive landscape also played roles in the decision to stop writing the business.
S&P Global recently downgraded the long-term issuer credit and financial strength ratings of Ohio National's core operating companies to A from A+. At the same time, the rating agency also lowered its long-term issuer credit rating on Ohio National to BBB from BBB+. The outlook is negative.
In the downgrade report, S&P's Getubig wrote that the agency would affirm its ratings in the next two years if the company "demonstrates very strong capitalization, executes on its life insurance business strategy and continues to strengthen its risk-management framework."
Getubig said it appears Ohio National may be setting its block up for a sale consistent with other industry players such as Voya Financial Inc. and The Hartford Financial Services Group Inc. Voya in June sold substantially all of its variable, fixed and fixed indexed annuities to an investor group led by Apollo Global Management LLC. At the end of 2017, The Hartford sold its runoff life and annuity businesses, Talcott Resolution Inc., to a group of investors for about $2 billion.
"We'll have to see if and when they dispose of that business, we'll see kind of what sort of capital release that can help move capital," Getubig said. "It's going to be a wait and see, we really don't know."
Ohio National has seen year-over-year declines in total U.S. individual annuity sales since at least 2016, according to life insurance research firm LIMRA. According to the data, the company's individual annuity sales declined to 405,425 in the first half of 2018 from 685,271 in the first half of 2016, representing a more than 40% drop.
Ohio National in 2017 attributed the decline in annuity sales to the Department of Labor's fiduciary rule, which required advisers who sell investment and retirement insurance products such as variable annuities to show they acted in their clients' best interest.
The company wrote in an insurance regulatory filing that Ohio National's variable annuity premiums dropped $457.4 million from almost $1.10 billion in 2016 to $647.8 million in 2017.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings document referred to in this news brief can be found in the sources section.